Matching Organizational Structure with Firm Attributes: A Study of Master Limited Partnerships

To create value and reduce agency costs, firms adopt availableorganizational structures that match their attributes. Thispaper studies the characteristics of firms that choose to becomemaster limited partnerships (MLPs). The MLP sample is dominatedby firms in low-growth industries that have highly focused operationsand superior profitability compared to their industry peers.After becoming an MLP, sample firms reduce capital expendituresand increase cash distributions, taking advantage of their focus,profitability, and status as non-taxable entities. A subsampleof MLPs subsequently change back to corporate form. After becomingcorporations, these firms reverse course by cutting cash distributionsand increasing capital spending. This cycle demonstrates howfirms restructure to adopt organizational forms that best fittheir needs.